Walmart hikes minimum wage, announces layoffs on same day

NEW YORK (Reuters) - Walmart on Thursday said it will raise entry-level wages for U.S. hourly employees to $11 an hour in February as it benefits from last month’s major corporate tax cut and on the same day said it will shut stores and lay off thousands of workers.

The world’s largest retailer and private employer, officially called Wal-Mart Stores Inc, will shutter 63 of its Sam’s Club discount warehouses, or about one tenth of the chain overall, according to a senior company official who declined to be named.

Around 50 of those stores will be shut permanently after a review of profitability and up to 12 more will be shut and reopened as e-commerce warehouses, the person said.

Every Sam’s Club store employs about 150 workers, bringing the total number of affected jobs to about 7,500, the person said. Many of them will be accommodated in new jobs at the newly opened warehouses and other stores, the official said.

Earlier on Thursday, Walmart announced the wage hike, saying it would also offer a one-time cash bonus, based on length of service, of up to $1,000, and expand maternity and parental leave benefits.

The layoffs went unaddressed but the wage increase attracted praise from the White House.

“Walmart is the largest employer in the country and to see them make that kind of effort to over a million workers is a big deal... and I think further evidence that the tax reform and tax cut package are having the impact that we had hoped,” White House press secretary Sarah Sanders told reporters on Thursday.

News of the store closures, hours after the wage hike announcement, drew some criticism.

“While pay raises are usually a good thing, this is nothing but another public relations stunt from Walmart to distract from the reality that they are laying off thousands of workers and the ones who remain will continue to receive low wages,” said activist Randy Parraz, director of Making Change at Walmart, a United Food and Commercial Workers Union (UFCW) affiliate.

The pay increase, Walmart’s third minimum wage increase since 2015, and bonus will benefit more than 1 million U.S. hourly workers, the company said.

The Walmart wage hike, taking minimum pay up from the current $10 an hour after in-house training, is aimed at helping the company attract workers at a time when the U.S. unemployment rate is at 4.1 percent, a 17-year low, making it harder to attract and retain minimum wage employees.

Walmart is likely to save billions of dollars from the new tax law, which slashed the corporate tax rate to 21 percent from 35 percent, and the wage hikes will cost the retailer only a fraction of those gains, analysts said.

A worker prepares the frozen food section at a newly built Walmart Super Center prior to its opening in Compton, California, U.S., January 10, 2017. REUTERS/Mike Blake

“Given how low unemployment is, they would have had to hike wages anyway, the tax bill just made that move easier,” said Edward Jones analyst Brian Yarbrough.

Rival retailer Target Corp raised its minimum wage to $11 in September, and said it would raise its minimum wage to $15 by 2020.

Walmart and Target’s new minimum wage levels exceed the state minimum wage in all but three states, according to a research note from financial services firm BTIG. Walmart must pay employees slightly more to meet minimum levels in those three states. Eighteen U.S. states increased their minimum wage on Jan.1 but the federal minimum wage has been $7.25 since 2009.

Walmart’s announcement follows companies like AT&T Inc, Wells Fargo & Co and Boeing Co, which have all promised more pay for workers since the Republican-controlled U.S. Congress passed the biggest overhaul to the U.S. tax code in 30 years.

Democrats have slammed the legislation, which also temporarily reduced tax rates for most individuals, as a giveaway to the wealthy that will widen the rich-poor income gap. President Donald Trump and his fellow Republicans have argued that the corporate tax cut will benefit workers and lead to more investment by U.S. companies.

Retailers, in general, have one of the highest average effective tax rates because a majority of their operations are in the United States.

Walmart said the new tax law will create “some financial benefit for the company” and that is it is looking at additional investments.

“We are in the early stages of assessing the opportunities tax reform creates for us,” President and Chief Executive Doug McMillon said in a statement, adding the law is an opportunity to be more competitive globally and to accelerate investment plans for the United States.

Walmart employs about 2.2 million people globally, with more than 1.5 million in the United States, and had total global revenue of nearly $500 billion last year. Ninety percent of Americans live within 10 miles of Walmart’s 4,700 U.S. stores, which sell everything from food and clothes to electronics and sports gear.

ONE-TIME BONUS

The increase in wages will cost approximately $300 million on top of wage hike plans that had been included in next fiscal year’s plans, the company said.

Labor group OUR Walmart called Thursday’s announcement a “substantial step” but said it still fell short of what all employees need to provide for their families. “If Target can raise wages to $15, Walmart most certainly can afford $15 an hour and full-time hours,” Carolyn Davis, a 10-year worker from North Carolina, was quoted saying in a note from the group.

Walmart raised its minimum wage to $9 an hour in 2015. In 2016, it said employees who finished an in-house training program would be eligible for $10 an hour. The retailer has spent about $2.7 billion to increase wages over the past few years, which has helped in improving customer service and keeping its stores clean.

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The hike announced on Thursday will also increase the average hourly pay for full-time employees to $14.50 from a current $13.85. The payscale for hourly workers will be from $11 to $24.70 per hour.

The one-time bonus will amount to $400 million in the current fiscal year and the company will take a one-time charge in the fourth-quarter of the current fiscal year to account for the charge.

Shares of the company ended up 0.35 percent at $100.02 on Thursday.

Reporting by Nandita Bose in New York, Additional reporting by Roberta Rampton in Washington D.C.; Editing by Frances Kerry and Bill Rigby